alone — the rising price of food is one of the biggest challenges for restaurant owners in 2023. While costs are always subject to fluctuation, this year brings a perfect storm of economic forces. Inflation, persistent supply chain disruptions, and a possible recession are driving increases of 10% or more across the board. By finding ways to control costs, you can maintain a positive cash flow and protect your bottom line.
What impacts the cost of food?
The global food market is complex and interconnected, which means an incident across the world can have a significant impact on your restaurant’s operations. For example, Ukraine typically produces 10% of the world’s wheat and 13% of its barley; the Russian invasion has affected crops and exports, reducing the global supply and increasing prices.
Some other factors that affect the cost of food include:
- Supply chain problems. Ongoing disruptions to the global supply chain slow the supply of both food and the packaging it comes in.
- Natural disasters. Storms and unexpected climate conditions can wipe out crops, destroy stored food, or disrupt shipments.
- Disease outbreaks. Diseases that affect crops or animals can drastically reduce the available food supply. In late 2022, for example, an outbreak of avian flu caused egg prices to rise by nearly 60%.
- Labor issues. Food producers rely heavily on human labor; when they have staffing shortages, it can affect supply and drive up prices.
- energy prices. High energy prices make it more expensive to process and transport food.
Types of restaurant food expenses
When you run a restaurant, there are three primary types of food expenses to consider when you’re building a menu: recipe cost, plate cost and period cost.
- Recipe cost is the amount of money you need to spend to make a recipe. To find it, calculate the price of each ingredient. If a recipe takes 1 pound of flour and you spend $30 on a 50-pound bag, the cost for that ingredient would be 60 cents.
- Plate cost refers to the cost of a meal on your menu. If it’s part of a larger recipe, you can simply divide the recipe cost by the number of servings. Otherwise, add the cost of each ingredient or element of the dish.
- period cost is the amount you spend on food over a specific period of time. To calculate it, take the dollar value of your inventory at the beginning of the period and add the value of any purchases you make during the period. Then, subtract the value of the remaining inventory at the end of the period to get your total food cost.
When you understand each type of food expense, it’s easier to set appropriate menu prices. Track each cost regularly — that way you can spot seasonal increases for specific ingredients and adjust your menu accordingly. If blueberries are more expensive in the winter, you might focus on desserts that incorporate cheaper, in-season ingredients such as lemons or oranges. Adopt a seasonal menu to keep up with changing flavor profiles.
Current food-expense data also helps you react quickly when customers reduce spending on restaurants and entertainment.
Food cost percentage: how to calculate it and why it’s important
Food cost percentage is the expense of your ingredients expressed as a percentage of your revenue. This number is an important reference point when you’re keeping tabs on food expenses and profits. If your food cost percentage is too high, you may need to reduce food spending or increase prices to avoid diminishing your restaurant’s profit margin.
In general, a good food cost percentage for restaurants falls between 25% and 40%, but the ideal target depends on your restaurant’s typical meal expense. If you run a fine-dining business that serves caviar and prime cuts of beef, you might have a food cost percentage between 35% and 40%; for a sandwich shop, this number might be closer to 25%.
To calculate your food cost percentage, follow these steps:
- Choose a specific period of time and calculate the period cost for your food (value of beginning inventory + value of purchases – value of ending inventory).
- Calculate the total menu item food sales for the same period of time.
- Divide the period cost by the total food sales and multiply by 100 to get the food cost percentage.
3 ways to control your food expenses
When prices are high, it’s more important than ever to control food costs. Reducing meal expenses creates more wiggle room in the budget to cover incidental expenses.
As you adjust your restaurant’s practices, it’s important to move gradually and keep an eye on the latest USDA food plans. Small, sustainable changes enable you to keep expenses in check while maintaining a consistent customer experience during a business meal or family dinner.
1. Get the best prices
When you need to control food costs, start by examining your supplier agreements. Some ways to get a good deal include:
- Shop around. Get quotes from multiple vendors to make sure you’re getting a fair price.
- Negotiate. If you’re happy with your current supplier, see if you can negotiate a better deal. You may need to offer something in return — sign a long-term commitment, for example, or order more products in return for discounted prices.
- Consolidate orders. Save money on shipping fees by consolidating your orders. Instead of ordering pasta and other dry goods every week, order once every 2 or 3 months. As a bonus, this strategy also makes it easier to get bulk discounts.
- Pay on time. Timely payments help your suppliers manage their cash flow. If you have a solid history, they may be more likely to cut you a deal to secure your loyalty.
- Find a local supplier. If your restaurant specializes in seasonal ingredients, consider partnering with a local farmer. You’ll pay less for transportation, and you can often negotiate a reasonable price for higher-quality foods.
Once you’ve found a satisfactory balance between food quality and cost, you can revisit your menu pricing strategy to ensure your food cost percentage falls within an acceptable range.
2. Customize your menu
Compare your menu to the last 3-12 months of sales data. What dishes sell consistently? What are the lowest-performing items? Do certain dishes sell only during specific months?
With these insights, customize your menu by:
- Eliminating low-performers. If certain dishes rarely or never sell, cut them from the menu. That way, the ingredients won’t take up valuable storage space, and you won’t need to worry about spoilage.
- Creating rotating offerings. If customers only order specific dishes during certain times, remove them from the menu the rest of the year.
- Focusing on seasonal ingredients. Ingredients are more plentiful when they’re in season, so prices tend to be lower. Create a seasonal menu that highlights these ingredients, and builds excitement among diners by writing mouthwatering menu descriptions.
Adjusting your menu on a regular basis helps you save money, but it also gives customers a reason to come back. To ensure diners are aware of the latest updates, make sure to communicate the changes in your restaurant with social media posts and marketing emails.
3. Control your inventory
When your inventory goes bad, it’s essentially wasted money. To control costs, manage your inventory carefully. Some ways to do so include:
- Track ingredients. Use software to track every ingredient; note which ingredients sit longer and adjust your ordering process accordingly.
- Order perishable ingredients locally. Locally sourced food has shorter transport times and more frequent deliveries, which can help reduce spoilage.
- Use promotions. If you notice that an ingredient is getting close to its expiration date, offer a special price on dishes that feature it. Grubhub Promotions makes it easy to increase visibility and increase sales for these menu items so you can quickly run through your inventory.
Cutting back on food waste
The food waste in your restaurant consists of the ingredients and leftovers you throw away every day. Spoiled food, returned meals, dropped trays, and inefficient preparation can all contribute to waste. By identifying the most wasteful aspects of your operations, you can get more mileage from your inventory and simultaneously reduce spending. Some ways to reduce food waste and manage your food costs include:
- Order ingredients to align with sales volume.
- Train kitchen staff in low-waste prep for each menu item.
- Prevent spoilage by using ingredients with a “first-in, first-out” approach.
- Standardize your recipes and portion sizes.
A low-waste operation benefits your bottom line — it cuts costs and keeps your food expenses under control, which leads to higher revenue.
Partner With Grubhub
As you find ways to control food costs in your restaurant, Grubhub can help. Your latest sales data is always available, enabling efficient analysis. Need to customize your menu items? The platform streamlines the process, so you can update the seasonal menu or push new promotions with just a few clicks. To get started, sign up for Grubhub today.